Further, the City of New York, under the leadership of Mayor Michael Bloomberg, has done a pretty good job closing its budget deficit, while maintaining essential public services.
However, on Monday Bloomberg and the City Council agreed on a proposal that should not move forward, and that should not be repeated by any jurisdiction: the parties agreed to increase the city's sales tax one-half percentage point, to 8.875%, The New York Times reported. In addition, the city would also start charging a tax on clothing over $110. Previously, all clothing purchases were exempt from the sales tax.
No state, city or jurisdiction should replicate this tax revenue error. The reason? Raising the sales tax is a regressive tax: it takes a larger percentage of disposable income from the poor and working class citizens than it does from middle and upper-income citizens.
How will this be self-defeating? Now, the poor and working class citizens will have even less money to spend or to invest – and that will lower GDP growth below where it would be without the tax.
Economic Analysis: New York, which generally tilts toward progressive tax policies, has erred by increasing the sales tax – and at a time when the typical person can least afford it. When revenue is needed, the proper source of additional revenue to close a budget deficit is to raise the income tax on upper-income citizens. In the city of New York, that means raising income taxes again on those individuals earning more than $300,000 per year. That's where the money is. Those are the individuals who have the means to pay the increased tax, and those are the individuals who should pay more, because they reap larger rewards from the American economic system.
The whole point of economic public policy is to promote sustainable growth and a cornerstone of that policy is to increase the disposable income of those with lower and modest incomes. It will be virtually impossible for the U.S. economy to achieve sustainable GDP growth if these groups do not have more to save, invest, and spend. Simply, the U.S. will not have enough consumers. Cutting the sales tax increases that disposable income; raising it takes it away. Here's hoping New York City's sales tax hike mistake is not an emerging trend.
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Reader Comments (Page 1 of 1)
6-03-2009 @ 4:12PM
Mike said...
Wow, I can't believe I just read this. The light clearly went on in Lazzaro's head. It's a shame that small governments have to resort to tax hikes to balance budgets. If they don't, they'll send out the "human shields" (e.g. we need to cut police man, fireman, blah blah.)
It's a shame that the bulk of BHO's gov programs are going to be nothing more than more tax hikes on the heavily-stressed middle class. This includes "cap and tax", SCHIP, card check, et al. The left is starting to see that free "health care for all" suddenly has a price tag attached to it.